As Rockford aldermen consider tightening their belts with regard to future funding for organizations like the River District Association, Miracle Mile Rockford, Midtown District, Inc., and other nonprofits, the source of such development funds—tax increment financing (TIF) districts—was the subject of a recent analysis by Andres Sammul, the city’s finance director. His prognosis was not especially rosy.

TIF districts are financing schemes employed by municipalities hoping to revive blighted areas. When a TIF district is created, assessed property values within its boundaries are essentially frozen—at least, as far as taxing bodies are concerned—for the life of the district, which is typically 23 years. As the area begins to redevelop—if it redevelops—and assessed values rise, any additional property tax revenue, or increment, is filtered into a special fund for public improvements, or to help finance private investment in the district.

Sammul is now urging aldermen to cut back on any new commitments of TIF dollars.

“Given the nature of TIF districts, it is recommended that, unless a project can generate the necessary debt service each year, long-term financing not be used in TIF districts,” he stressed. “In addition, it is recommended that pay-as-you-go financing also not be used unless a district’s current forecast is positive for all remaining years.”

TIF districts are often commenced with an infusion of cash through the issuance of bonds under the assumption the district will not only generate enough of an increment to eventually pay off the debt, but to provide some sort of benefit to lure investment. Under the pay-as-you-go model, no debt is issued, and only the generated increment is available for projects. Therefore, developers are incentivized to deliver results to ensure some sort of TIF return on their investments.

According to Sammul’s May 8 memorandum to Mayor Larry Morrissey (I) and the Rockford City Council, although several of Rockford’s TIF districts are performing as expected, the city’s TIF program ended 2009 with a combined deficit of $1.8 million. That negative fund balance, Sammul added, will expand to $4.1 million in 2022 before the trend reverses.

The figure, however, seems based on the assumption no new debt-bearing TIF districts are created in the meantime.

“It turns positive in 2031,” Sammul indicated. “That change assumes that districts that close out with negative balances receive a transfer from other funds.”

“Other funds” could include the city’s general and redevelopment funds, which rely on property and sales taxes, respectively, or by transferring money from TIF districts that are successful to contiguous ones that are not.

“In 2009, to address the nonperformance of TIF districts, as well as the Redevelopment Fund, the council approved the transfer of funds among certain funds. We will need to continue this strategy for the next 10 years,” Sammul added. “There are groups of adjacent districts that can benefit from this.

“With our current cash position resulting in a need to borrow, it is critical that we utilize available funds between districts and the Redevelopment Fund in the next decade to reduce deficits and lower our need to borrow,” he stressed.

Jim Phelps, president of Midtown District, Inc., likens this approach to “corporate communism,” in that one district is rewarded at the expense of another, which he said violates the intent of TIF—addressing blight in the district generating the increment.

“When $700,000 was removed last year from this TIF [for debt service in the East Side TIF District], no one thought of contacting the Midtown District,” Phelps responded. “$700,000 would fund 23-and-a-third years at the current funding level for the Midtown District. This TIF ends in 2016, which makes the removal of these funds at this time even more suspicious-looking to me.

“It may also have the effect of inhibiting future entrepreneurial growth in this and other TIFs,” he suggested. “In other words, less tax dollars in terms of increasing property values and sales tax generation for the City of Rockford.

“Frankly, this level of expropriation is frightening,” he added. “In general, this level of unaccountability is disastrous for the citizens, stakeholders and future of Midtown and the City of Rockford.”

Meantime, Midtown is awaiting a decision by aldermen whether to OK $30,000 in funds from the successful Seventh Street TIF District. Phelps indicated the funds would be used for marketing area businesses, image branding, replacing sidewalk garbage cans, and to work with developers and Realtors to promote business and residential opportunities in the district.

Sammul’s report, however, may give aldermen reason for pause, because the district’s $591,000 fund balance may be too tempting to use elsewhere.

Although the River District Association and Miracle Mile Rockford have received nods for full funding from the city in recent weeks, Phelps indicated Midtown’s request is continually left off the Planning and Development Committee agenda.

He said the initial request was submitted in February, but was subject to several revisions. The finalized request, Phelps added, was submitted to Jovita Donahue, a development specialist for the city, March 24.

When Phelps followed up with Donahue nearly two months later to inquire when the matter would come before the Planning and Development Committee, she attributed the delay to the committee’s review of future funding considerations for nonprofits in the wake of negatively-performing TIF districts.

“The City is aware of and appreciates all of our community partners’ efforts to meet the needs of the community, but due to current financial restraints are forced to move in the current direction of reviewing future funding for all organizations,” Donahue responded in an e-mail. “Unfortunately, we are unable to move forward with your request until further P&D discussion and a decision has taken place.”

As Phelps sat through the committee’s May 17 meeting, however, he watched as $22,100 in funding was approved for Keep Northern Illinois Beautiful.

“To not fund the Midtown District would more than telegraph the intentions of creating a ‘Central Business District’ [in which the Midtown and the River District groups would essentially become one organization], such as what the Rock River Development Partnership is currently proposing,” Phelps noted.

Redevelopment Fund restructured

The city’s Redevelopment Fund was created in 1978 by a 1-percentage-point sales tax on motel, package liquor and restaurant receipts. The “Metro Tax,” which has since been renewed until 2028, was established primarily as a means to offset the MetroCentre’s operating deficit. Historically, however, the civic center has only received about 40 percent of the fund’s proceeds.

In 2009, the Redevelopment Fund produced $3,432,659, and $3,495,200 is anticipated for 2010. This year’s Redevelopment Fund expenditures are projected to be $3,563,045, adding to a $3.7 million deficit that is not expected to turn positive until 2024, according to projections after aldermen restructured the fund last year.

The new structure included a $1.2 million subsidy for the MetroCentre in 2009, $1.1 million this year, and $1 million in 2011. Additionally, the city took over the $486,000 in debt service payments arena leaders had previously thought the center could bear after remodeling. Aldermen also agreed to back the MetroCentre for it to receive a new line of credit.

But as the city is renewing its focus on using the Redevelopment Fund for the MetroCentre, other organizations that have historically depended on such dollars have seen decreased, or completely eliminated, funding from this coffer. The Rockford Area Economic Development Council (RAEDC), for instance, was delivered a $100,000 cut from what had been a $300,000 annual allotment. An annual $50,000 allocation for Southwest Ideas for Today and Tomorrow (SWIFTT) was ceased.

But to erase the Redevelopment Fund’s deficit, Sammul is tightening the reins on the MetroCentre as well, which counted on $456,000 from the fund in 2008.

“In order for the Redevelopment Fund restructuring to succeed, the MetroCentre subsidy after 2011 cannot exceed $300,000,” he warned. “Any additional subsidy amount would need to come from the Tourism Promotion Fund,” upon which the Rockford Area Convention and Visitors Bureau (RACVB) significantly relies. Between 2009 and 2010, the RACVB has experienced a $338,600 reduction from the fund, which is anticipated to generate about $1.55 million this year.

As a number of Rockford’s TIF districts are in danger of closing with negative balances, the Redevelopment and General funds are being eyed as means to shore up the deficits, which would deplete tax dollars from their intended uses.

The report card—adjacent TIF districts

By law, funds may only transfer from one TIF district to another if the districts are adjacent. Because a number of TIFs have fund balances in the black, while others are in the red, this is quickly becoming a convenient practice in Rockford government, which has 30 such areas at its disposal. Based on the interconnectivity of TIF districts in the central city, the successful TIF districts will likely bear the burdens of their underperforming neighbors.

Three Global Trade Park TIF districts

Rockford’s three Global Trade Park TIF districts will need to work together, via $750,000 in transfers through 2012, to prove “successful.” The original TIF, expiring in 2027, shows a negative fund balance of $250,800, but is expected to turn positive next year. According to Sammul, as much as $7.7 million could become available among the three TIFs in the years to follow.

In 2007, the city provided Anderson Packaging $1.1 million in TIF funds from the district toward a $7.5 million expansion project, which promised 150-250 new jobs within five years. The following year, Anderson laid off 167 employees.

Transfers into the TIF began last year, Sammul indicated, and should continue in the amounts of $150,000 this year and $300,000 in each of the two following years. Despite the negative balance requiring transfers from the second and third Global Trade Park TIFs, Sammul described the TIF as “successful.”

The second Global Trade Park TIF, to expire in 2030, has a $12,300 deficit, which is expected to shift into the black by the end of this year. Sammul reported the TIF’s increment production has decreased, but that no debt service payments need to be made. The district is expected to generate an increment of $4.66 million during the next 21 years. To help counteract the shortfall of its predecessor, $500,000 in transfers will be made from this TIF through 2012. Sammul determined the second Global Trade Park TIF “could be successful.”

The third Global Trade Park TIF, expiring in 2031, shows a balance of $13,200 and is not encumbered by debt service payments. It is expected to produce up to $4.2 million in increment during the next 22 years. Sammul is recommending that $250,000 be transferred into the first Global Trade Park TIF by 2012. Sammul projects that the third Global Trade Park “could be successful.”

Springfield Corners TIF District

Hope for the success of the Springfield Corners TIF District relies heavily on Spring Creek Development’s $65 million mixed-use Renaissance Corners project on West State Street, between Pierpont and Springfield avenues, toward which the city has pledged $5,438,937.

Meantime, in the wake of a slumping housing market, the Emerson Estates subdivision project within the TIF has slowed considerably.

According to Sammul, fund transfers into the district began last year, and should continue in the amount of $250,000 annually through 2017. The transfers would then fall to $200,000 in 2018 and 2019. Presently, the district shows a $422,700 deficit, and a total debt service of $5,891,548 through 2023.

“With these transfers, and assuming a successful build-out, the TIF will turn positive the last two years,” Sammul projected.

However, if development does not go as originally planned, Sammul noted, additional transfers will be needed to erase a negative fund balance when the TIF expires in 2025.

“Given this financial status, there should be no more bond sales for this district unless there is a guaranteed debt service stream for the new debt,” he added.

State and Central TIF District

Springfield Corners’ neighbor, the State and Central TIF District, shows a deficit of $11,300, but is expected to turn positive next year. The TIF, ending in 2030, has no debt service obligations, and Sammul recommends that transfers be made into Springfield Corners to offset its deficit. Noting that up to $5 million could be produced by the State and Central TIF District over 20 years, Sammul advised it “could be successful.”

South Rockford TIF District

Despite $1.7 million in proposed assistance from the Redevelopment Fund through 2017, the South Rockford TIF District is expected to close in 2023 with a deficit of more than $680,000.

“A General Fund transfer for fund closeout may become necessary,” Sammul stated.

The district presently shows a deficit of only $23,200, but is buried in debt service. Per Sammul’s recommendation, $1.7 million would be earmarked from the Redevelopment Fund, while transfers from other central-city TIF districts would also be needed to address the shortfall.

East Side TIF District

The East Side TIF District, ending in 2016, has a fund balance of $12,000, with debt service to end next year. The TIF is expected to have about $922,000 at its disposal between 2013 and 2016, which Sammul noted would be “available for use in the central-city group for deficit reduction.”

East River TIF District

The East River TIF District, which Sammul said “could be successful,” has a $37,300 fund balance. The TIF bears a total debt service of $528,842 through 2023. Sammul anticipates the TIF could generate $1.79 million in available funds between 2015 and 2032, when the district is set to close.

River North TIF District

The River North TIF District, which Sammul also says “could be successful,” shows a negative fund balance of $88,700, but is expected to turn positive next year. The district will bear $548,318 in debt service through 2028, but could produce $2.24 million in available funds by the time the TIF closes in 2032.

Two West Side TIF districts

The original West Side TIF District, to expire in 2016, has a fund balance of $4,600, with debt service to end next year. The TIF is then expected to have $758,000 available between 2014 and 2016, which Sammul noted would be “available for use in the central-city group for deficit reduction.”

Its successor, the second West Side TIF District, is showing an $18,100 deficit, but should be out of the red next year, according to Sammul. He estimated $211,000 could become available between 2014 and 2030, when the “could-be-successful” TIF will expire.

Seventh Street TIF District

The Seventh Street TIF District, somewhat of a darling with a $591,000 fund balance, is set to expire in 2016. $450,000 is due for project payouts from three bond issues, however, plus $850,000 in debt service, which will be satisfied in 2015. Sammul estimates $2.5 million will be available during the final six years of the TIF.

Midtown TIF District

The Midtown TIF District, ending in 2032, has a $53,700 fund balance and no debt service burden. Sammul projects that $1.86 million will be available over the “could-be-successful” TIF’s 23-year life.

Broadway TIF District

The Broadway TIF District is $135,000 in the red, but Sammul expects the fund balance to turn positive in 2013 with the benefit of no debt service payments owed. He estimates $1.26 million will become available between 2013 and 2032, when the TIF closes.

Jackson School TIF District

The Jackson School TIF District, ending in 2029, has a fund balance of $150,600, but is also encumbered by $233,189 in debt service through 2017. Sammul predicts $2.9 million would then become available over a 20-year period.

The report card—non-adjacent TIF districts

When a failing TIF district is not abutting a successful one, the city has fewer options to correct a shortfall.

“Of the remaining 14 TIF districts that are not adjacent, three are forecast to close out with deficit positions,” Sammul reported. “If this does indeed become the case, then transfers from either the General or Redevelopment funds will be needed.”

Based on current projections, a figure approaching $3 million may be needed to close the gaps before the three districts can be retired.

Culprit 1: Preston and Central TIF District

The Preston and Central TIF District’s present deficit of $1,268,600 is expected to rise to $2,283,500 when the TIF is to expire in 2030. The TIF bears debt service in the amount of $1,543,494 through 2026. Revitalization efforts have been disappointing so far.

Among notable endeavors within the district, in 2007, the city issued bonds to provide Liebovich Brothers $1.1 million for an expansion project. The expansion, however, has stalled.

“While the private activity project is currently on hold, the company is paying the debt service until they can begin the project,” Sammul offered. “Under current assumptions, fund balance will not turn positive, and is projected to be a negative $2.25 million at closeout. This will require application for funding under the state LUST [Leaking Underground Storage Tanks] program, as well as transferring funds from other city funds, general and redevelopment.”

Culprit 2: North Main TIF District

The North Main TIF District is projected to close with at least a $325,200 deficit in 2026. The TIF bears a total debt service of $2,204,929 through 2022, and revitalization has been slow here, too.

“Neither the commercial nor the residential components are completely built out at this time,” Sammul stated. “If build-out occurs in the next two years, then this TIF is projected to close out with a negative $359,000 balance. For each year of delay, an $80,000 transfer will be required to close out. A General Fund, or possible Redevelopment Fund, transfer for fund closeout may become necessary.”

Culprit 3: Main and Whitman TIF District

Sammul estimates the Main and Whitman TIF District’s present deficit of $158,600 will decrease to a negative balance of $58,300 when the district is to expire in 2031, but “will require a transfer from either the General or Redevelopment funds to close out.” The TIF bears debt service totaling $2,038,088 through 2028.

River Oaks TIF District

The River Oaks TIF District, presently showing a $546,300 deficit, will be retired in 2028. It bears $2,966,353 in debt service payments through 2019, and plans for 63 condominiums and the removal of a mobile home park have not lived up to expectations.

“This project is not built out as planned,” Sammul asserted. “Under best-case scenario, if build-out occurs by 2013, then the TIF will turn positive by 2025 and will generate $1.78 million in available funds over the last four years. For each year of delay, $320,000 will be lost. Delay past 2018 will require a transfer from the General Fund for closeout.”

Garrison School TIF District

The primary reason for creation of the Garrison School TIF District was to aid in the redevelopment of the former Garrison School into residential lofts and adjacent row houses, spearheaded by then-civilian, now mayor, Larry Morrissey and his family. In addition to $1.5 million in TIF assistance, $700,000 in historic preservation tax credits helped make the project possible.

Despite the advances, Sammul reported, “This project is not built out as planned,” but noted the TIF “could be successful.”

If built out in the next year, the district will close in the black in 2028, he added. The district, which bears $2,155,568 in total debt service through 2023, presently shows a deficit of $284,300, which could be out of the red by 2027 with available funds in the amount of $220,000 in the TIF’s last year.

“For each year of delay, $100,000 will be lost,” Sammul warned, however. “Delay past 2011 may require a transfer from the General or Redevelopment funds for closeout.”

Southeast Area TIF District

On the plus side, the Southeast Area TIF District will be retired this year with an anticipated ending balance of $580,000, which will be distributed back to short-changed taxing bodies, about a quarter of which the city will receive.

Assisted Living TIF District

On somewhat of a laughable note, the Assisted Living TIF District produces only $83 in increment, and has a positive fund balance of $40.

“Consideration should be given to dissolving this district,” Sammul concluded.

Two Lincolnwood TIF districts

The two Lincolnwood TIF districts are described as “successful” by Sammul. The first has turned a corner into a positive balance that is now $74,600. The TIF district has $617,241 worth of debt, refinanced in 2005, that will extend through 2017. After the debt is retired, Sammul indicated, $586,000 will become available in the remaining years of the district.

The second Lincolnwood TIF District, to close in 2027, has a balance of $23,400, but also $746,279 in debt through 2021. Sammul reported $240,000 is expected to become available the last two years of the TIF district’s life.

The first, ending in 2027, has a $40,100 balance and no debt service obligations. About $900,000 is committed to development through 2023, and Sammul estimated $270,000 will be made available the last five years of the TIF.

The second, ending in 2031, has a balance of only $140, while producing a modest $250 increment. Thankfully, the TIF has incurred no debt, but the district is only expected to generate $4,000 by retirement at its present rate of production.

Hope VI TIF District

The Hope VI TIF District “could be successful,” Sammul stated. Ending in 2028, it has a negative balance of $190,300, which is expected to turn positive in 2027. The TIF bears $3,465,438 in debt service through 2023, and Sammul estimates $606,000 will become available in the last two years of TIF.

State and Kilburn TIF District

The State and Kilburn TIF District, ending in 2029, has a negative balance of $23,800, but is anticipated to turn positive next year with the benefit of no debt service payments.

With an estimated $550,000 to be available 2019-2029, Sammul asserted the district “could be successful.”

Main and Auburn TIF District

The Main and Auburn TIF District, also to expire in 2029, has a $13,700 fund balance and no debt service obligations. Another “could-be-successful” TIF, an estimated $430,000 may become available by the time the district is retired.

State and Alpine TIF District

The State and Alpine TIF District, also referred to as the “Miracle Mile,” is a successful TIF in Sammul’s eyes. Expiring in 2029, the district has a fund balance of $321,300 with no debt service to get in the way.

Notably, the city committed $480,000 in TIF funds over a six-year period for the renovation of Don Carter Lanes, and to make way for its new off-track-betting tenant.

In total, $850,000 has been committed to projects through 2015. Sammul indicated $4.74 million could become available by the end of the TIF’s life.